Finite Resources

The Crash of 2015: Going Global

Off the keyboard of Thomas Lewis

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Published on the Daily Impact on May 26, 2015

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titanic-sinking

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Titanic_sinking,_painting_by_Willy_StöwerJust in the past week, the headlines have been coming like triphammer blows: in Bloomberg News, “Something has gone wrong with the global consumer,” (according to JP Morgan); in International Business Times, “G7 Finance Ministers to address faltering global growth;” in London’s Telegraph, “HSBC fears world recession with no lifeboats left;” in OilPrice.com, “Clock running out for struggling oil companies;” and even in the mainstream vanilla Washington Post, a column by Robert Samuelson predicts “China’s coming crash,” then puts a question mark at the end to make sure we don’t worry too much.

When you add these concerns to longer standing ones about wild gyrations in the world’s stock and bond markets; the advent of peak oil in pretty much every oil-exporting country in the world; the onset of the effects of global climate change in California, the Middle East, North Africa, Brazil and elsewhere; it becomes apparent that optimism ought to be listed as a disorder requiring medical intervention.

What’s wrong with the global consumer? In the imortal words of Howard Davidowitz, a leading expert on retail, consumers “don’t have any f’ing money.” It is slowly — way too late — dawning on the Masters of the Universe that unless ordinary people have money to spend — and by that we mean real money, not more credit cards or a third mortgage — the Masters are toast.

According to J.P. Morgan economist Joseph Lupton, “It would be difficult to overstate the recent downside surprise in global consumer spending.” Lower gas prices were supposed to stimulate spending. They didn’t. The high stock markets were supposed to encourage enough job creation to seriously dent unemployment rates and stimulate spending. They didn’t. The lackluster numbers of early spring were supposed to be the result of bad weather. They weren’t. “Clearly,” says Lupton, “something is off track.”

Indeed. International shipping is at historic lows. Energy consumption is declining. In the US, the trucking industry is starting to show weakness. At the same time rail-freight shipments are declining sharply. Retail stores are closing by the thousands. While, obliviously, the stock market soars to new heights.  

Meanwhile, says International Business Times, “Finance ministers from the world’s largest developed economies meet in Germany this week against a backdrop of faltering global growth, scant inflationary pressures and a bond market in turmoil.” They’ll get to all this after they have figured out how to keep Greece from nuking the European Union by defaulting on its obligations because Greece hasn’t got any f’’ing money, either. Even if they can figure out how to amputate Greece without getting an infection, they will still be looking at either anemic growth or actual contraction in the powerhouse economies of the United States, China, Canada and Europe.

Now, even if you believe, as I do, that the notion of infinite growth on a finite planet is ridiculous, and the notion that all growth is always good is suicidal, you still live, as I do, in a system that will crash if its faith on growth is broken. So pay attention to these idiots. They’re driving.

Meanwhile, a report written by and for HSBC, the world’s third largest bank, likens the world economy to the Titanic, “sailing across the ocean without any lifeboats.” In fact the report is titled “The World Economy’s Titanic Problem,” and was written by a writer of financial horror stories appropriately named Stephen King. In his relentless account, the world’s central bankers have expended every bit of ammunition they have to stop the approaching iceberg of debt and depression, and the iceberg is bigger and closer than ever. You will stifle a scream as you read.

This gathering emergency is only invisible to those whose paychecks require that they do not see it. Unfortunately, that includes many journalists and virtually all politicians. The rest of us need to take another look at the pile of boards on the aft deck of the Titanic and get to work on our personal lifeboats. Now.

Do Central Bankers Recognize there is NO GROWTH?

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Published on the Doomstead Diner on April 26, 2015

Off the keyboard of RE
http://thecompanion.in/wp-content/uploads/2015/03/polyp-org-uk-No-Economic-Growth-cartoon-e1298661998815.jpg

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Everywhere in the Political World you hear the phrase "Return to Growth", the Holy Grail for resolving the economic woes of the world.

http://gujarati.oneindia.com/img/250x90/2014/06/17-himalayas-glaciers.jpgWith Growth, the Greeks got no problems, they can pay off the Mole Hill of debt they owe to everybody.  With Growth, the FSoA can pay off the MT. EVEREST of debt owed to everybody.  Growth is GOOD.  It solves all problems.

Sadly of course, Infinite Growth on a Finite World is impossible, and as vast as the resources of the Earth may have seemed a century or two ago, an Exponentially growing population of Homo Saps has managed to burn through most of the good easy to get at stuff, and while burning through it load up the environment with the waste such consumption produces.  We are essentially DIGESTING the Planet, and leaving it loaded with the excrement from said consumption.

Problem in the Near Term here though is that the Monetary System we used to access and distribute all these resources itself is also predicated on perpetual growth, and when the growth stops, so also stops the Monetary system.  Except, not quite right away.  Everybody and every thing DEPENDS on the monetary system to keep functioning, and we have Geniuses up there at the top running the show who endeavor to make SURE it keeps functioning, no matter what reality is telling us here.

How ARE they keeping this running?  Two acronyms for you here which tell it all, ZIRP & NIRP.  Those are the modern bankstering acronyms for ZERO INTEREST RATE POLICY and NEGATIVE INTEREST RATE POLICY.

From Zero Hedge:

Earlier today, we were quite shocked when we heard two statements by central bankers uttered during a press briefing in Washington. The first comes from the ECB's Mario Draghi:

DRAGHI: LOW RATES FOR LONG PERIOD INCREASE FINANCIAL STABILITY RISKS

The second: from his supposed nemesis, if only for public consumption and not during the BIS' bimonthly meetings in Basel, Bundesbank head Jens Weidmann, who said a carbon copy replica of what Draghi had said minutes prior:

WEIDMANN SAYS LOW INTEREST RATES INCREASE FIN STABILITY RISKS

We were "shocked" because for once, we agree with central bankers. And to get a sense of just how right the two central bank heads are we go to Bank of America which overnight released a report in which it said that as of this moment, "53% of all global government bonds are yielding 1% or less (Chart 3)."

Let that sink in for a second.

And while you are contemplating that, here is another fact from Bank of America:

The global narrative remains maximum liquidity (Chart 2) & minimal interest rates. And it’s impossible to be max bearish with such an extravagant monetary backdrop.

Central bank assets now exceed $22 trillion, a figure equivalent to the combined GDP of US & Japan

So yes, low rates for a long period of time most certainly "increase financial stability risks" – the central planners are certainly correct about that. But next time they make that remark, perhaps someone from the media can ask Messrs Draghi or Weidmann the following question:

does the fact that central banks now collectively own nearly a third of global GDP in government bonds and equivalent assets – an amount that is greater than the GDP of first and third largest global economies, have anything to do with "low rates" and the fact that "financial stability risks" as of this moment have never been higher?

Oh, and good luck with that "renormalization."

Now, EVERYBODY KNOWS Money is supposed to "Make Money" in some kind of virtual perpetual motion machine.  If you save a small pile of the stuff for your retirement, your supposed to get a "decent return" which in the olden days was something like 5-10% depending on how much "risk" you were willing to take on your "investments".  Real risk averse people like my Mom who was a child during the Great Depression wouldn't invest in the Stock Market, too risky.  She put her little pile into CDs, considered one of the safest places to park your cash, which gave a slightly higher return than a typical Savings Account.  She probably collected an average return of around 3% over the years she was retired for this pile.

These days though, nobody including the Central Banks that issue out the money expects to get any return on it, they expect to LOSE money. If you are well connected enough, the Bank will PAY YOU to borrow money from them.  That's what a Negative Interest Rate means.  On the other side of the coin, if you happen to be someone with enough surplus income to actually save some of it, if you drop it in the bank for them to keep it "safe", they'll charge you for the priviledge of keeping your money "safe" with them.

So, basically the whole monetary system we have come to believe in is completely ass-backwards now, and what this really is is a recognition that Growth has stopped, and in fact reversed to contraction.  I hate that Newzspeak term "degrowth".  We're not "degrowing", at best we're shrinking and maybe DIEING.

Obviously, the super smart folks running the monetary system KNOW that there is no growth here in any real terms, but to keep the monetary system operational they need to present the ILLUSION of Growth.  Every last Politician and Technocrat…Wait!  Let me digress here for a moment on this "Technocrat" thing!

"Technocrat" is another nice Newzspeak Euphimism for a Fascist Apparatchik.  Prior to about 1930 this word didn't even fucking EXIST, and it didn't get much play after it was invented until the 1960s

technocrat_ngramFrankly, if Google's nGram stat system was updating this term from 2008 to today, I bet you dollars to doughnuts that "Technocrat" has reached still more dizzying heights in the world of NewzSpeak.  Notice how the word is a confabulation of the Positively Held notions and words of Technology & Democrat?  Technology is GOOD.  A Technocrat  must be SMART too.  Democratic principles are GOOD.  A Technocrat must care about Democracy, because it's right there in the name, right?  Here's a typical Technocrat:

http://images.bwbx.io/cms/2012-09-05/0905_mario_draghi_630x420.jpg

Super Mario Dragon

Do you think this former Goldman Bankster gives a flying fuck about "democracy"?  Of course he doesn't.  All he gives a shit about is keeping the system running here so he can stay at the top of the heap.  Far as his Technical Knowledge goes, he's as fucking clueless as everybody else running this show.   They don't have a solution to the problems we face, because short of a massive dislocation, probable World War and copious Death & Destruction, there really isn't a solution that works for everybody.  SOMEBODY (or really many somebodies) will get completely FUCKED here!  Super Mario's job is to make sure that isn't himself or any of his friends at Goldman.

He's not a stupid guy of course, so he certainly knows by now that there is no real Growth anywhere on the horizon for anybody, but in order to keep the system running, the ILLUSION of Growth must be maintained at all costs, and the costs are steep indeed.  So Super Mario and the rest of the CB Apparatchiks out there jawbone Growth, but even with all the Free Money dished out to the well connected, they tacitly acknowledge there is no Growth with a Zero Interest Rate.  How can you "grow" your personal little pile of Savings if you get no interest on it?  If the Bank or Bonds you use to park your money have a NEGATIVE interest rate, your pile doesn't grow over time, it shrinks.  Currently both Swissie and Kraut Goobermint Bonds are Negative Interest Rate "investments".  So why does anybody drop their money into this dogshit?  Because these Bonds are perceived as a "safe haven" when the inevitable Crash that Everybody Knows is coming arrives and the Magically Levitated Stock Market finally faces The Last Margin Call TM.

The evidence that there is no Growth is all over the place of course, all you have to do is look at the declining number of people in the Labor force…

http://www.ritholtz.com/blog/wp-content/uploads/2012/12/part1202121_big.gif

…or the total Miles Driven and Gas Konsumed by the no longer working…

http://www.ritholtz.com/blog/wp-content/uploads/2012/02/3ilesgas0213121_big.gif

…or the CRASHING count of Oil Rigs across Frackerville

Oil_Rig_Collapse

Watch Four Years of Oil Drilling Collapse in Seconds (Bloomberg)

Click the link to view the full Interactive Map

http://www.whatamimissinghere.com/wp-content/uploads/2010/08/Bubble-Debt-Crisis-500x354.jpgHow was all that drilling financed to begin with?  With a lot of DEBT, that's how, which is about the only thing left that IS Growing, and Growing Exponentially.

Since the "Investors" out there couldn't get any kind of return on anything else, they started pitching out funny money at the drillers, "chasing yield"  as the saying goes.  Problem of course with this is that the folks who borrowed this funny money are in the process of Going Outta Biz.  Those loans aren't going to be paid back anymore than the pile of Student Debt will be paid off either.

Currently, of the somewhere around $1.3T in Student Debt, fully 1/3rd is currently delinquent or in arrears.

From Zero Hedge:

It’s no secret that America has a $1.3 trillion student debt problem and as we’ve outlined on a few occasions recently, the actual delinquency rate for student borrowers is far higher than the (also high) 18% that’s generally reported because as The St. Louis Fed recently pointed out, it’s important to look not at delinquencies over total student loans but at delinquencies over loans in repayment and when you do the math on the latter you discover that once America’s best and brightest come out of deferment and forbearance, one in three quickly fall 30 days or more behind on their payments. In other words, the real delinquency rate (i.e. the rate for those who are actually required to make payments) is closer to 30%.

And while the Obama administration debates more “efficient” ways to allow for the discharge of this mountainous pile of bad loans in bankruptcy proceedings, some folks saw their student debt ABS put on review for downgrade at Moody’s which cites default risk on nearly $3 billion worth of paper. As a reminder, these are the deals and tranches affected:

http://www.hyde.edu/wp-content/uploads/2012/04/churchill.jpgNow, since this nonsense of ever escalating levels of debt and ever decreasing quantities of available resource has been ongoing and working (sort of, for .01% of the Population), clearly TPTB have deluded themselves into believing they can keep this Ponzi running in perpetuity.  Just KEEP ISSUING OUT MORE DEBT!

Problem of course is that the debt is only being issued out to .01% of the population, so consumption is shrinking and until they start issuing out the Funny Money to J6P to buy the junk on sale at Walmart at Low, Low Prices Every Day, it will keep shrinking.  The Central Banksters can Jawbone growth from now until the cows come home, but it won't get J6P increasing consumption, which represents about 70% of the GDP.

Eventually, as already is the case with the oil price, you get a crash in the prices and the losses get recognized.  Oil isn't like the Housing market, where you can keep all the unsold and foreclosed on McMansions in hidden inventory for years on end while you wait for a "rebound" in demand.  There's a limited amount of above ground storage space for Oil, and once it is all filled up you have to dump inventory at whatever price you can get for it until you can get all the production shut in to limit the supply to match the ever decreasing demand.

The Saudis are taking advantage of this situation to try and drive everybody else outta biz faster, by INCREASING rather than decreasing their production.  They're aware the prices are never going to go back up, so they're doing a Final Liquidation Sale. "Everything Must Go! 90% off all Merchandise!"

The ETP Model developed by the Hill's Group has been remarkably accurate in predicting the downward pressure on the price of Oil, and the conclusions drawn are inescapable.  Below, from the 4th Update to the ETP Model:

The price of petroleum is controlled by two factors:1) The cost of production.
2) The $ amount that the end consumer (the NEGs) can afford to pay for it.What the end consumer pays must be sufficient to cover the cost of production. All production cost must be borne by the end consumer, who includes the end buyer, and the societal cost required to produce petroleum, and its products.The Petroleum Price Curve, shown below, reflects the two factors that have, and will continue to control petroleum prices. The ETP derived Cost Curve is constructed from the ETP model, and has mapped the price of petroleum since 1960 with a correlation coefficient of 0.965. It is the most accurate pricing model that has ever been developed, (see report)*.The Maximum Consumer Price curve was also developed from the ETP model. It represents the maximum price that the end consumer can pay for petroleum. It is based on the observation that the price of a unit of petroleum can not exceed the value of the economic activity that the energy it supplies to the end consumer can generate.
A more complete explanation of how the Maximum Consumer Price curve was formulated is show in chart# 160 below:

depletion2022003.jpg

The two Maximum affordable price curves labeled 71% (black), and 62% (light blue) are skewed logistic curves. There is no explicit mathematical equation to describe them. They are derived numerically, and the dots represent values for specific years. The 71% curve is the maximum theoretical energy that can be extracted from a unit of 37.5° API crude. Its value is derived from the combustion equations of hydrocarbons. The 62% curve is the average energy extracted from the same hydrocarbon by the end user. It passes through the  ETP derived price curve at the inflection point of the ETP curve in year 2012. 2012 was the energy half way point for petroleum production. It was the year when it required one half of the energy content of petroleum to produce the petroleum, and its products.
The individual points are generated from the equation:  $/barrel = (Energy delivered – ETP value/ BTU/$) * 42.Energy delivered = 140,000 BTU/gal *0.62 (140,000 BTU/gal – the energy content of 37.5° API crude)
ETP value is derived from the ETP function
BTU/$ is taken from the BTU/$ graph – Graph# 12

The Maximum Consumer Price curve is curtailed at 2020 at $11.76/ barrel. At this point petroleum will no longer be acting as a significant energy source for the economy. Its only function will be as an energy carrier for other sources. Production will continue as long as producers can realize the lifting costs at existing fields. E&D expenditures, and field maintenance costs will have been curtailed. All production from that point forward will be from legacy fields only. The economic impact that will result from the energy lost to the general economy is beyond the scope of this report.

 

The energy content of a unit of petroleum is fixed by its molecular structure. The energy to produce a unit of petroleum, and its products increases with time as a result of the entropy production of the PPS (Petroleum Production System). The energy remaining for use by the general economy declines, and the economic activity that the petroleum can power also declines. Chart# 161 below shows the historical, and projected economic activity in 2014 dollars that a barrel of petroleum (37.5° API crude) has, and will be able to power.
 
Historically, petroleum has been a primary beneficiary to the economy. The economic activity that it powered was greater than the cost of the petroleum. Its historical effect can be seen in Graph# 25 (World GDP vs Cumulative Production). That benefit is now declining, and by the early 2020's an increased use of petroleum will no longer add to GDP. It will become more cost effective for society to begin limiting its use of petroleum as the use of petroleum transitions from a GDP enhancer to a GDP reducer.

The Hills Group isn't alone in having modeled this crash, Steve Ludlum on Economic Undertow modeled it also when he noticed two converging and irreconcilable trends, the increasing cost of what it takes Drillers to extract the Oil and Natural Gas vs. the decreasing price the customers can afford to pay.  Back in August of 2012 Steve published the first of his Triangle of Doom TM charts predicting the crash in Oil prices.

TriangleofDoomWe all know what occurred in November of 2014:

Triangle-of-Doom-1101141

…and here's the LATEST in Triangle of Doom Charts…

Triangle-of-Doom-041515

 

The rest, as they say, is History.  Steve predicted TO THE MONTH the collapse in the Oil Price, so when you read in the MSM "Who Cooda Node?" this would occur, you can tell them we knew.

Where does it go from here?  First off, as is obvious above here, Drillers are going Bankrupt and Outta Biz, the smaller operators first.  Rig counts in the Bakken and Marcellus drop daily (see the interactive map from Bloomberg above), and the most expensive to extract Oil is getting shut in first.  The biggest companies and largest exporters like the Saudis with the deepest pockets will last the longest, but they also inevitably will succumb to the downward spiraling demand from increasingly impoverished consumers.  As noted in the Hills Group Report, by 2020 Oil will be a negligible part of the economy as the cost to extract versus the price that can be paid to burn it becomes uneconomic for everyone.  It may even occur before that, since many enterprises driven by Oil such as Refineries can only operate at large scale.  Once refineries start shutting in, it doesn't matter if there is still some Oil left in the ground or a few people still with functioning money who could buy it.  It simply will not be available at ANY price.

How will our society function without Oil and it's products?  Simply stated, IT WON'T.  Not in its current form anyhow.  What sort of new society we will transition into and how we will cope with the many problems resultant from this kind of radical change is an open question.  The only thing you can say for certain is the transition will not be an easy one, and that life a decade into the future will not resemble much the life we are still living now, at least if you haven't yet fallen off the Economic Cliff.

The Dominoes are falling as we speak.  It is only a matter of time before it Comes to a Theater Near You.


 

 photo mr_know-it-all_zpsdea49f76.jpgMore Rogue Economist  Articles & Rants:

Money Valve I, Money Valve II, Money Valve III, Money Valve IV,David Korowicz Podcast:Financial Contagion & Tipping Points,Financial WWIII, Of Heat Sinks & Debt Sinks: A Thermodynamic View of Money,Theory of Everything I, Theory of Everything II, Energy-Money Equilibrium I, Energy-Money Equilibrium II, Energy-Money Equilibrium III,Da Fed: Central Banking According to RE,Kurrency Kollapse,Large Public Works Projects I,Large Public Works Projects II,Large Public Works Projects III,Waste Based Society I, Waste Based Society II, Waste Based Society III,Smokin' Economista Crack,Demand Destruction, Swissie Capitulation,Energy & Banking Criminal Racketeering,Economic Ebola,Competitive Currency Devaluation & Deflation,Inflation, Deflation & FOOD!,Financial WWIII: Secessions, Sanctions & Anti-Dollars, Anti-Dollars III: Fining Putin,Anti-Dollars II,Anti-Dollars,Eurobanksters Pray for Jesus,Wealth Confiscation & Destruction,Monetary Kabuki,Peak Credit,Fictional Wealth & Putin's Billions,Student Loan Forgiveness,Deflation Doom,The Death of Debt,Emerging Markets & Peripheral Currency Collapse,Tower of Babel Moment,Submerging Markets,Musical Dollars,Energy, Money & Gold,History & Future of Coinage & Money,The Future of Money,Whither Gold?,Conduits,The Crucifixion of Money,Banks: Unsafe at Any Speed,More Musings on Money,Liquidity Traps & Asset Class Sinkholes,Small Bizness in the Sea of Irredeemable Debt,Now Why Don't They SHOP?,Debt Monetization Economics,Financing the Industrial Revolution,Manufacturing Money,Capital Controls,F7 Print Button in Lockup,Moving Beyond Capitalism,On Dignity & Comparative Wealth,Avalanche Theory of Debt Cascade Failure,The Concepts of Money & Capital,Dollar-Oil Nexus,Hyperinflation vs. Deflation: Rebutting FFOA,Hyperinflation vs. Deflation Continued,Energy, Money & Oil: Inter-relationships,Banksters go ALL IN,History of Economic Collapse & the End of the Age of Oil,Capital Flight & Unions: 40 years of History in the FSoA,Hyperinflation or Deflation?,In the Debtrix, there is no Red Pill,

Map

INVESTORS: FIVE REASONS WHY MONEY MUST DIE

Off the keyboard of John Ward

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Published on The Slog on January 13, 2014

money-death

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econcartCROPThe distance from now to the inevitable is, by definition, finite

Tell me, have you ever read 2000-2013 The Corporate Issuance Global Frenzy: what role for US Quantitative Easing? by Marco LoDuca of the European Central Bank et al?

G’wan…bet you haven’t. I have, and now my brain hurts. Simplistic is bad, but simple is good. Impenetrable is worthy, but clarity and vision are worth more.

Four years ago, I asked two questions about the arrival of QE and Zirp into our linguistic lexicon. One, what will you do if QE doesn’t work? And two, why will Zirp help recovery, when the biggest single demographic group with the lowest overheads needs Zirp + 4% to keep spending?

They were both naive questions – I know that now. When the first two bouts of QE didn’t work, I took out Bear Notes, on the wild and crazy assumption that Ben and Merv must change tack. They didn’t, and I saw a third of my investment capital  wiped out. And of course, without Zirp most of Wall Street would’ve gone bankrupt, followed in fairly short order by the US Government and the United Kingdom. I did a quick sum and worked out that if rates were at 4% for 3 years, for example, by 2015 $2.30 in every $5 would be going on just managing US Sovereign interest.

Anyway, 2014 has dawned, and here we are with the same crazy people saying “one more heave” for both stimulation and austerity at the same time. Here we are with Greece, Spain and Italy on the edge of default – and debt bonds from these countries flying off the shelf. Here we are with Zirp having saved nobody really, and the tapering of QE about to start a little bit and if anything goes wrong well, it won’t hahahahaha. And above all, here we are talking about interest rates as if these Masters of the Universe could forbid them to rise, ever.

In that context, 2000-2013 The Corporate Issuance Global Frenzy: what role for US Quantitative Easing? by Marco LoDuca of the European Central Bank et al doesn’t exactly hum with relevance. There are many who will be glad about this, but my point is based on reality rather than long equations: there is no point in doing learned studies based on the logic of madness unless you are a CBT counsellor or psychiatrist.

This is where we are, actually, now, on Planet Earth:

1. The Americans, Brits, Eurozoners. Japanese and Chinese are all emitting drivel, spin and desperately clutched, atypical statistics to tell us the recovery is under way. It isn’t. QE has failed, and the response of the authorities is now that of managing crack addict withdrawal rather than getting a better policy.

2. Printing money to purchase poo simply gives the central banks a very big and wide poo-based balance sheet, while starting out on the fast lane to inflation.

3. Interest rates must and will rise, because market pressures on gold, commodities, bonds and a hundred other formerly good investment areas have gone, and the smart money knows that the Bourses have had their day in the sun: it’s about to start drizzling.

4. When they rise, money will have to be printed to manage debt owed by the debtor countries. This will result in the fast-lane inflation vehicle sprouting James Bond wings and zooming up into hyperinflation. Don’t even think about what that will do to the markets.

5. Neoliberal economics demands consumption 24/7/365. Sadly, they also demand a 30% reduction in mass consumer spending power. And guess what – inflation will merely exacerbate that. This is a circle that simply cannot be squared. It’s the flaw in the theory, the ghost in the machine, the Mammoth in the downstairs lavatory.

Those five factors demand a crash. They don’t point to it, or suggest it, or even persuasively propose it: they demand it. Flatlining consumption will meet tentatively tapered easing, skid into a bond balloon, and bounce over the central reservation where it will hit rising debt costs towing hyperinflation. In the raging inferno that follows, the stock market will be burned to a crisp.

I have no idea any more how long the boys in the the bubble can keep up the denial. Japan’s road looks pretty short to me, and Germany’s austerity shtick will hit the buffers once the directionalising debt money pulls out of ClubMed. The bank bailin surrealism will not get past the first French bank that tries it on, and that in turn will make France’s real situation obvious. Britain’s Chancellor George Osborne has a carpet-bag like a tardis: I’m constantly amazed by the consistently superficial credibility of the cons he pulls off. And in theory, until the tipping point, the States could keep pumping smoke into the Hall of Mirrors almost indefinitely.

But in time, “almost” will be passed, and then Janet Yellen will be heading like Speedy Gonzales for the downstairs loo. In there she’ll find a hairy mammoth saying “I was here first”.

Enjoy the week.

Why a Finite World is a Problem

Off the keyboard of Gail Tverberg

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Published on Our Finite World on January 2, 2013

http://vhemt.org/opus.jpg

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Why is a finite world a problem? I can think of many answers:

1. A finite world is a problem because we and all of the other creatures living in this world share the same piece of “real estate.” If humans use increasingly more resources, other species necessarily use less. Even “renewable” resources are shared with other species. If humans use more, other species must use less. Solar panels covering the desert floor interfere with normal wildlife; the use of plants for biofuels means less area is available for planting food and for vegetation preferred by desirable insects, such as bees.

2. A finite world is governed by cycles. We like to project in straight lines or as constant percentage increases, but the real world doesn’t follow such patterns. Each day has 24 hours. Water moves in waves. Humans are born, mature, and die. A resource is extracted from an area, and the area suddenly becomes much poorer once the income from those exports is removed. Once a country becomes poorer, fighting is likely to break out. A recent example of this is Egypt’s loss of oil exports, about the time of the Arab Spring uprisings in 2011 (Figure 1). The fighting has not yet stopped.

Figure 1. Egypt's oil production and consumption, based on BP's 2013 Statistical Review of World Energy data.

Figure 1. Egypt’s oil production and consumption, based on BP’s 2013 Statistical Review of World Energy data.

The interconnectedness of resources with the way economies work, and the problems that occur when those resources are not present, make the future much less predictable than most models would suggest.

3.  A finite world means that we eventually run short of easy-to-extract resources of many types, including fossil fuels, uranium, and metals.  This doesn’t mean that we will “run out” of these resources. Instead, it means that the extraction process will become more expensive for these fuels and metals, unless technology somehow acts to hold costs down. If extraction costs rise, anything made using these fuels and metals becomes more expensive, assuming businesses selling these products are able to recover their costs. (If they don’t, they go out of business, quickly!) Figure 2 shows that a recent turning point toward higher costs came in 2002, for both energy products and base metals.

Figure 2. World Bank Energy (oil, natural gas, and coal) and Base Metals price indices, using 2005 US dollars, indexed to 2010 = 100.  Data source: World Bank.

Figure 2. World Bank Energy (oil, natural gas, and coal) and Base Metals price indices, using 2005 US dollars, indexed to 2010 = 100. Base metals exclude iron. Data source: World Bank.

 

4. A finite world means that globalization will prove to be a major problem, because it added proportionately far more humans to world demand than it added undeveloped resources to world supply. China was added to the World Trade Organization in December 2001. Its use of fuels of all types skyrocketed quickly soon afterward (Figure 3, below). As noted in Item 3 above, the turning point for prices of fuels and metals was in 2002. In my view, this was not a coincidence–it was connected with rising demand from China, as well as the fact that we had extracted a considerable share of the cheap to extract fuels earlier.

Figure 3. Energy consumption by source for China based on BP 2013 Statistical Review of World Energy.

Figure 3. Energy consumption by source for China based on BP 2013 Statistical Review of World Energy.

5. In a finite world, wages don’t rise as much as fuel and metal extraction costs rise, because the extra extraction costs add no real benefit to society–they simply remove resources that could have been put to work elsewhere in the economy. We are, in effect, becoming less and less efficient at producing energy products and metals. This happens because we are producing fuels that are located in harder to reach places and that have more pollutants mixed in. Metal ores have similar problems–they are deeper and of lower concentration. All of the extra human effort and extra resource expenditure does not produce more end product. Instead, we are left with less human effort and less resources to invest in the rest of the economy. As a result, total production of goods and services for the economy tends to stagnate.

In such an economy, workers find that their inflation-adjusted wages tend to lag. (This happens because the total economy produces less, so each worker’s share of what is produced is less.) Companies producing energy and metal products are also likely to find it harder to make a profit, because with lagging wages, consumers cannot afford to buy very much product at the higher prices. In fact, there is likely to be the danger of an abrupt drop in production, because prices remain too low to justify the high cost of additional investment.

6. When workers can afford less and less (see Item 5 above), we end up with multiple problems:

a. If workers can afford less, they cut back in discretionary spending. This tends to slow or eventually stop economic growth. Lack of economic growth eventually affects stock market prices, since stock prices assume that sale of their products will continue to grow indefinitely.

b. If workers can afford less, one item that is increasingly out of reach is a more expensive home. As result, housing prices tend to stagnate or fall with stagnating wages and rising fuel and metals prices. The government can somewhat fix the problem through low interest rates and more commercial sales–that is why the problem is mostly gone now.

c. If workers find their wages lagging, and some are laid off, they increasingly fall back on government services. This leaves governments with a need to pay out more in benefits, without being able to collect sufficient taxes. Thus, governments ultimately end up with financial problems, if extraction costs for fuels and metals rise faster than can be offset by innovation, as they have been since 2002.

7. A finite world means that the need for debt keeps increasing, at the same time the ability to repay debt starts to fall. Workers find that goods, such as cars, are increasingly out of their ability to pay for them, because car prices are affected by the rising cost of metals and fuels. As a result, debt levels need to rise to buy these cars. Governments find that they need more debt to pay for all of the services promised to increasingly impoverished workers. Even energy companies find a need for more debt. For example, according to today’s Wall Street Journal,

Last year, 80 big energy companies in North America spent a combined $50.6 billion more than they brought in from their operations, according to data from S&P Capital IQ. That deficit was twice as high as in 2011, and four times as high as in 2010.

At the same time that the need for debt is increasing, the ability to pay it back is falling. Discretionary income of workers is lagging, because of today’s high prices of fuels and metals. Governments find it difficult to raise taxes. Fuel and metal companies find it hard to raise prices enough to  finance operations out of cash flow. Ultimately, (which may not be too in the future) this situation has to come to an unhappy end.

Figure 4. Repaying loans is easy in a growing economy, but much more difficult in a shrinking economy.

Figure 4. Repaying loans is easy in a growing economy, but much more difficult in a shrinking economy.

Governments can cover up this problem for a while, with super low interest rates. But if interest rates ever rise again, the increase in interest rates is likely to lead to huge debt defaults, and major financial failures internationally. This happens because higher interest rates lead to a need for higher taxes, and because higher interest rates mean purchases such as  homes, cars, and new factories become less affordable. Rising interest rates also mean that the selling price of existing bonds falls, potentially creating financial problems for banks and insurance companies.

8. The fact that the world is finite means that economic growth will need to slow and eventually stop. We are already seeing slower economic growth in the parts of the world  that have seen a drop in oil consumption (European Union, the United States, and Japan), even as the rest of the world has seen rising oil consumption.

Figure 5. Oil consumption based on BP's 2013 Statistical Review of World Energy.

Figure 5. Oil consumption based on BP’s 2013 Statistical Review of World Energy.

Countries that have had particularly steep drops in oil consumption, such as Greece (Figure 6 below), have had particularly steep drops in their economic growth, while countries with rapid increases in oil and other energy consumption, such as China shown in Figure 2 above, have shown rapid economic growth.

Figure 6. Oil consumption of Greece, Based on EIA data.

Figure 6. Oil consumption of Greece, Based on EIA data.

The reason why we are already reaching difficulties with oil consumption is because for oil, we are reaching limits of a finite world. We have already pulled out most of the easy to extract oil, and what is left is more expensive and slow to extract. World oil production is not rising very fast in total, and the price needs to be high to cover the high cost of extraction.  Someone has to be left out. The countries that use a large proportion of oil in their energy mix (like Greece, with its tourist trade) find that the products they produce are too expensive in a world marketplace. Countries that use mostly coal (which is cheaper), such as China, have a huge cost advantage in a cost-competitive world.

9. The fact that the world is finite has been omitted from virtually every model predicting the future. This means that economic models are virtually all wrong. The models generally predict that economic growth will continue indefinitely, but this is not really possible in a finite world. The models don’t even consider the fact that economic growth will scale back in mature economies.

Even climate change models include far too much future fossil fuel use, in both their standard runs and in their “peak oil” scenarios. This is convenient for regulators. Oil limits are scary because they indicate a possible near-term problem. If a climate change model indicates a need to cut back on future fossil fuel use, these models give the regulator a more distant problem to talk about instead.

10. Even the most basic economic relationships tend to be mis-estimated in a finite world. It is common for economists to look at relationships that worked in the past,  and assume that similar relationships will work now. For example, researchers like to look at how much debt an economy can afford relative to GDP, or how much debt a business can afford. The problem is that the amount of debt an economy or a business can afford shrinks dramatically, as the economic growth rates shrinks, unless the interest rate is extremely low.

As another example, economists believe that higher prices will lead to substitutes or a reduction in demand. Unfortunately, they have never stopped to consider that the reduction in demand for an energy product might have a serious adverse impact on the economy–for example, it could mean many fewer jobs are available. Fewer jobs mean less demand (or affordability), but is that what is really desired?

Economists also seem to believe that prices for oil products will keep rising, until they eventually reach the price level of substitutes. If people are poorer, this is not necessarily the case, as discussed above.

11. Besides energy products and metals, there are many other limits that are a problem in a finite world. There is already an inadequate supply of fresh water in many parts of the world. This problem can be solved with desalination, but doing so is expensive and takes resources away from other uses.

Arable land in a finite world is subject to limits. Soil is subject to erosion and degrades in quality if it is mistreated. Food is dependent on oil, water, arable land, and soil quality, so it quickly reaches limits if any of these inputs are disturbed. Pollinating insects, such as bees, are also important.

Probably the biggest problem in a finite world is the problem of too high population. Before fossil fuel use was added, the world could feed only 1 billion people. It is not clear that even that many could be fed today, without fossil fuels. The world’s population now exceeds 7 billion.

Where We Are Now in a Finite World

At this point, the problem of hitting limits in a finite world has morphed into primarily a financial problem. Governments are particularly affected. They find that they need to borrow increasing amounts of money to provide promised services to their citizens. Debt is a huge problem, both for governments and for individual citizens. Interest rates need to stay very low, in order for the current system to “stick together.”

Governments are either unaware of the true nature of their problems, or are doing everything they can to hide the true situation from their constituents. Governments rely on economists for advice on what to do next. Economists’ models do a very poor job of representing today’s world, so they provide little useful guidance.

The primary way of dealing with limits seems to be “solutions” dictated by concern over climate change. These solutions are of questionable benefit when it comes to the real limits of a finite world, but they do make it look like politicians are doing something useful. They also provide a continuing revenue stream to academic institutions and “green” businesses.

The public has been placated by all kinds of misleading stories about how oil from shale will be the solution. Quantitative Easing (used by governments to lower interest rates) has temporarily allowed stock markets to soar, and allowed interest rates to stay quite low. So superficially, everything looks great. The question is how long all of this will last. Will interest rates rise, and undo the happy situation? Or will a different financial problem (for example, a debt problem in Europe or Japan) bring the house of cards down? Or will the ultimate problem be a decline in oil supply, perhaps caused by oil and gas companies reaching debt limits?

2014 will be an interesting year. Let’s all keep our fingers crossed as to how things will work out. It is surreal how close we can be to limits, without major media catching on to what the problem really is.

Suicidal Growth

Off the keyboard of Ray Jason

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Published on The Sea Gypsy Philosopher on December 10, 2013

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Sailing down the decades, my sweet little boat and I have witnessed some amazing meteor showers while alone at sea. During those nights I always listen to Debussy’s lyrical masterpiece “Reverie,” while lying on my back and marveling at the falling stars. And what makes it even more sublime is being the only human presence in that sector of the planet. It reminds me of how utterly tiny Homo Sapiens is in the grand scheme of things. Unfortunately, back on land the dominant perspective is just the opposite. Humanity considers itself the Grand Actor in the center of the cosmic stage, and Nature is merely the backdrop.

But my almost visceral understanding of just how miniscule our species is, inspires me to view our human project in a radically different manner. Spend as much time alone at sea as I have, and you too might find yourself transformed from being an Accepter to a Questioner. In this essay I will discuss a topic that is almost universally embraced and yet never challenged. That subject is Growth. How can somebody argue against Growth you might wonder? Well, hopefully I can do so calmly and convincingly.

*******

Even a sixth grader understands that infinite growth on a finite planet is impossible. This is not an “economic issue” to be debated. It is an ecological fact that must be addressed. Our planet has limited resources and our survival hinges upon our ability to allocate and preserve them. The two great enemies of sustainability on Earth are Runaway Population Growth and Conspicuous Consumption Growth. Together they are a recipe for biological botulism.

http://isiria.files.wordpress.com/2008/07/overpopulation.jpgPopulation overshoot has been fervently debated ever since Thomas Malthus first introduced it back in 1798. In the 1960s, Paul and Anne Ehrlich reignited the discussion with their cautionary book, THE POPULATION BOMB. The timeline of their predictions did not come true, because they had not foreseen the Green Revolution that massively expanded industrial agriculture. But now food output HAS peaked while population expansion continues to accelerate. So a significant population decrease is essential.

But there is a huge force in the world which will not allow this to happen. That obstacle is Big Religion. The major monotheistic churches want their membership to grow as enormously and rapidly as possible. But they never admit to such selfish motives. Instead, they claim that they are merely following god’s edict that birth control shall be forbidden and that the flock shall go forth and multiply.

If you doubt the truth of this indictment, consider this. If the Catholic Church injunction against birth control is not just designed to increase their enrollment, then they will not object to this suggestion: Let every other child that is born to a Catholic parent be raised as a Muslim. Observe how the church fathers respond to that recommendation, and you will quickly understand that their birth tyranny edicts are not about god’s will, but are instead about increasing their membership and their power.

Another more subtle impact of Big Religion’s dictatorial population stance is how it affects education. There is a direct link between a higher level of education and a lower birth rate. The least educated segments of society tend to be the most religious. And so women who are forbidden by the church to use birth control devices soon become birth increase devices. Since they are burdened with almost constant childbirth, they have little time for education or for the widening of their personal horizons and opportunities. They become slaves to reproduction and to Big Religion.

Besides the bishops and mullahs and rabbis, there are other factors contributing to out of control population growth, and I will deal with them thoroughly in a future essay. But one thing that I can’t emphasize enough is the fact that this issue does not even get discussed in any meaningful way. If you think that bringing up politics and religion is a sure way to derail a conversation in polite company, just interject the issue of population control and notice how almost everyone considers it a taboo subject. And yet overpopulation is a major element – if not THE major factor – in the history of every single civilization that has collapsed.

*******

The second type of growth that is so hazardous to our planet and all of its creatures is our lust for stuff. Although the USA is largely innocent when it comes to causing population problems, it is unmistakably guilty when it comes to promoting rampant consumerism. The American Way of Life is worshipped and imitated around the globe. Through its movies and television and product saturation, the American Empire spreads its own religion with missionary zeal – The Church of the Mall. The message of that gospel is that happiness is achieved by owning things. The corollary to this is that more stuff equals more fulfillment. Embracing such a vapid worldview has dire consequences for the Individual, the Society and the Planet.

For people, it means that values such as the affection of friends, the solidarity of community, the appreciation of beauty are all subordinate to the less meaningful and often endless craving for more stuff. I contend that the world is not better off with cars that talk to us or 671 types of “yogurt products” or phones so expensive that one has to take out a loan to purchase them.

http://www.photosensitive.com/imgs/native-children-happy.jpgMany of my sea gypsy years have been spent in Third World countries. I have carefully observed that there is a direct correlation between personal happiness and owning a lot of things. But it is an inverse relationship. Only 30 yards from where I am now typing, I will often marvel at Indio children playing joyously for hours with just a coconut and a stick. And yet just down the dock, first world kids will be miserable because their electronic game console is not the latest version.

http://www.tophostgames.com/wp-content/uploads/2013/09/kids-playing-violent-video-gamesdo-bad-grades---violent-video-games---violent-kids--greater-good-irfohlij.jpgAside from the damage that insatiable consumption inflicts on the individual, it also has extremely harmful consequences for the larger society. When a person fixates on buying more things and interfacing with more machines, they forget to exercise their power of critical thinking. They are so mesmerized and distracted by the latest iEverything, that they don’t even notice their slide into consumer slavery. A society with a colossal wealth discrepancy between the rich and the poor, with meaningless work that is numbing and degrading and with a tyrannical police/surveillance grid should be cause for code-red alarm. But instead, most people barely notice it because there is an enormous plasma TV in the way.

But our addiction to more and more stuff is not just harmful to individuals and to societies. It is utterly catastrophic to our one and only life-supporting planet. Our constant-growth consumerism pollutes the air, decimates the ocean fish stocks, poisons the rivers and blows away the topsoil.

*******

This combo platter of increasing population growth and unceasing consumer growth is a recipe for societal suicide. Too many people and too much stuff are ravaging all of the support systems that keep us alive. We need breathable air, clean drinkable water, fertile land, plus renewable and non-renewable resources. But we are decreasing all of these vital necessities and at the same time we are increasing all of the waste products that our excesses are generating. This cannot end well! But it CAN end horribly!

 

P.S. For excellent information on how to steadily decrease population without coercion, visit Bill Ryerson’s site www.populationmedia.org. He has nobly dedicated 40 years of his life to this unpopular cause.

 

Why I Don’t Believe Randers’ Limits to Growth Forecast to 2052

Off the keyboard of Gail Tverberg

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Published on Our Finite World on September 25, 2013

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Jorgen Randers published a book in 2012 called 2052: A Global Forecast for the Next 40 Years. A note on the front says, “A report to the Club of Rome, Commemorating the 40th Anniversary of The Limits to Growth.”

If we compare the new book to the book from 40 years ago, we see some surprising differences. In 1972, the analysis suggested that serious resource depletion issues would occur about now–the first part of the 21st century. In comparison, current indications look much better. According to Randers’ current analysis, world GDP growth will continue to rise through 2050, and energy consumption will continue to grow until 2040. While a decline in oil supply will take place, it will not occur until 2025. When it does happen, it will occur sufficiently slowly and incrementally that other fuels can replace its loss, apparently without disruption. Renewables will ramp up far more rapidly in the future than to date.

Figure 1. Comparison of oil and renewables forecast in 2052, based on spreadsheet from www.2052.info.

A person reading the front cover of 2052 might think that the model is quite close to the model used in the original The Limits to Growth analysis. My review indicates that the current model is fairly different. The book talks very little about the workings of the model, so doesn’t let us know what changes have been made.

It is possible to do some detective work regarding how the current model is constructed. Dolores “Doly” Garcia, who worked on the model, wrote three posts published on TheOilDrum.com explaining the model.  There is also a website (www.2052.info) provided by Randers giving the numerical output of the model in spreadsheet form.  Together, these point to a methodology which assumes that if world oil supply declines, the decline will be slow and will be quickly offset by a rise in the use of renewables, coal, and natural gas. Changes in the model, which I will describe further in another section, are the first reason I don’t believe Randers’ Limits to Growth forecast.

A second reason why I don’t believe Randers’ forecast has to do with limitations of the original forecast. These limitations did not make much difference back in 1972, when researchers were trying to estimate approximate impacts 40 or 50 years later, but they do now, when resources are becoming more depleted. One issue omitted is from the model is a price mechanism. A related issue is that there is no true calculation of demand, based on what consumers can afford. The model also omits debt, and the role debt plays, both for investment purposes and in order for consumers to afford products made with oil and other energy products. Research regarding past collapses indicates they were financial in nature–the model should not overlook this important issue.

A third reason why I don’t believe the forecast in 2052 is because a model of this nature necessarily cannot model events that are important to ultimate collapse, but which happen on a smaller scale, and trigger cascading failures. An example might be oil depletion in Egypt, Syria, and Yemen. All of these countries were at one point oil exporters. They each now have substantial financial problems because of the loss of oil exports. The population of each of these countries has now grown, so there are now many more mouths to feed. Unfortunately, without oil exports, the financial situation is such that it is not possible to provide the level of food subsidies and other benefits that an oil exporter can provide. The result seems to be serious civil disorder that threatens to spread beyond the these countries own borders. See my post Oil and Gas Limits Underlie Syria’s Conflict. The 1972 Limits to Growth book warned readers that the report likely missed issues of this nature. The current book lacks such caveats.

A fourth issue is that the 2052 report is very much the work of a single individual, Jorgen Randers, while the earlier report was a committee report. Randers makes statements in the book that make it sound like he already knows the answer before he does the modeling. On page 61 he says,

I basically believe that we will see the same rate of technological and societal change over the next forty years as we have seen over the last forty years. That is because the drivers will be the same and the organization of global society is unlikely to change discontinuously.

Thus, Randers tells us he believes that he already knows that no swift change will take place. That is fine–unless the belief is based on a misunderstanding of real relationships.

On page 56, in a section called “The Deterministic Backbone,” Randers explains that some variables including population, industrial infrastructure, energy consumption, and GDP growth change very slowly, over periods of decades. With this view, methods are chosen so that none of these can change very quickly.

Oil Drum Posts by Dolores “Doly” Garcia

Dolores “Doly” Garcia published three posts on The Oil Drum related to versions of the model she was working on that ultimately was used in 2052. These posts are

A New World Model Including Energy and Climate Change Data (April 3, 2009)

New World Model – EROEI issues (Aug. 24, 2009)

An alternative version for three of the “key graphs” in IEA’s 2010 World Energy Outlook (July 7, 2011)

In these posts, especially in  New World Model – EROEI issues, Garcia explains why world energy supply now falls much more slowly than in the 1972 Limits to Growth scenarios. In her words, these are the three reasons:

  1. Renewable energy sources
  2. The decline of non-renewable energy sources follows a logistic curve. The exact equation is:Increase in production = 0.2*(fraction of fossil fuel remaining-0.5)*current production. .  . .
  3. Switching from some energy sources to others makes for a gentler, staged decline.

EROEI has only an effect on this last point, in that it’s the cause that drives the switching from one energy source to another.

What Doly Garcia is writing about is not exactly the model that is used in 2052–in fact she gives a range of outputs. But looking at the data from the spreadsheet associated with 2052, it is clear that some approach similar to this is being used. Using the revised approach, oil supply now declines relatively slowly, from an assumed peak in 2025 (Figure 1 and 2) and other fuels (coal, natural gas, renewables) rise in consumption relatively more quickly than in reports published by other forecasters (IEA World Energy Outlook, BP Energy Outlook, Exxon Mobil- A view to 2040). As noted in Figure 1 above, renewables ramp up very quickly.

Figure 2. Energy Consumption to 2050, based on spreadsheet data from www.2052.info.

Assuming that oil supply will follow the logistic curve on the down-slope, as well as assuming easy switching among fuels and a rapid ramp-up of renewables is basically assuming a best-possible outcome. It is basically assuming that a shortfall of oil won’t be a problem, because there will be a way around it–substitution and new fuel sources, until investment capital runs short.

I wrote a post recently called Stumbling Blocks to Figuring Out the Real Oil Limits Story, in which I talked about the common (incorrect) belief of many that M. King Hubbert  claimed the downslope of world oil supply would follow a slow curve, such as the logistic. As far as I know, he claimed no such thing. When population has risen because of the use of these resources, even a slowdown in supply is a huge problem, as we recently witnessed with the Great Recession that accompanied the 2008 run-up in oil prices.

There are some situations where such a logistic curve might be appropriate, for example, if we can make electric-plug in cars as cheaply as oil powered cars, and we don’t need to change over to plug-in electric cars until the oil-powered cars wear out, so we don’t have extra costs. But in general, there is no reason to expect a logistic curve on the decline. What I said in the post linked above is

If there is not a perfect substitute for oil or fossil fuels, the situation is vastly different from what Hubbert pictured. If oil supply drops (perhaps in response to a drop in oil prices), the world economy must quickly adjust to a lower energy supply, disrupting systems of every type. The drop-off in oil as well as other fossil fuels is likely to be much faster than the symmetric Hubbert curve would suggest.

In the above discussion, Doly Garcia mentions that the distribution of energy is determined based upon Energy Return on Energy Invested (EROEI). These are values calculated by Dr. Charles Hall and various others with respect to the amount of energy needed to create new energy, with the idea that the types of fuels that need relatively less energy for new production will be exploited first.

The danger in using this approach is that a person can push off assumptions into variables in models without any real analysis as to whether such increases make sense in the real world. For example, hydroelectric is mostly built out in the US, and it is our largest source of renewable energy. Unless analysis is done using disaggregated data, with some tests for reasonableness, one can get very much overstated renewable energy estimates.

Financial Issues that the Model Misses

The model, when it was originally constructed in 1972, was mostly a model of amounts of industrial production and amounts of pollution, and numbers of population. It did not include much of an analysis of the economy, other than investment and depreciation, and these may have in fact been in units of production, rather than as monetary amounts. The new model has something called GDP (which Doly Garcia says she added), and something which is called “demand,” based on an estimate of the quantity of energy products which people might use, but which does not correspond to what people can actually pay for (which is likely quite different).

Recent research (Secular Cycles, by Peter Turchin and Surgey Nefedof) suggests that when civilizations collapsed in the past, it was generally for financial reasons. A shortage of resources per capita led to increasing wage disparity, with falling wages for the common worker. The government was called upon to provide more and more services (such as bigger armies), leading to a need for higher taxes. The increasingly impoverished workers could not pay these higher taxes, and it was this clash between needed taxes and ability to pay these taxes that brought about the collapse. In such a situation, there was more of a tendency toward resource wars and revolutions, leading to deaths  of workers. Workers weakened by poor nutrition because of inability to afford adequate food also had higher death rates from disease.

The fact that we seem to be reaching very similar symptoms gives a hint that resource depletion may, in fact, already be playing a role in the economic problems we are seeing today. Perhaps analyses today should be examining the financial health of countries–the ability of countries to find enough jobs for potential workers, and the ability of these workers to earn adequate wages.

Labor Productivity

Randers assumes that Labor Productivity will continue to grow in the future, but that it will grow at a slower and slower rate, following a linear pattern. It seems to me that this linear pattern in optimistic, once oil starts reaching limits. Human productivity reflects a combination of  (a) human effort, (b) the amount of capital equipment people have to work with, and (c) the amount of energy products at the disposal of humans. If there is a shortfall at all in the energy products, we could see a big cutback in labor productivity. Already, countries with intermittent electricity are finding that their production drops as electricity availability drops.

Liebig’s Law of the Minimum

A strong case can be made that a shortage of one energy product will have cascading effects throughout the economy, which is closer to what the original Limits to Growth model assumed. We often talk about Liebig’s Law of the Minimum being a problem. This law says that if a particular process is missing some essential ingredient, it won’t happen. Thus, if delivery trucks don’t have oil, the effects will cascade throughout the system, causing what will look like a major recession. All types of fuel uses will drop simultaneously.

The effect of Liebig’s Law of the Minimum is difficult to model. The existence of this issue is a major reason why models assuming rapid substitutability are likely optimistic.

Conclusion

When reasonable forecasts don’t look good, it is hard to publish anything. A person doesn’t want to scare everyone to death.

We don’t know exactly what thought process went through Jorgen Randers’ head in putting together this projection. Is this truly Randers’ best estimate, based on an optimistic view of substitutability, rapid ramp up of renewables, and assumption that no unforeseen problems will come along? Or did he not understand how optimistic the forecast was, perhaps because he was unaware that one cannot count on energy declines following a logistic curve? Ugo Bardi instead talks about the Seneca Cliff, a far steeper curve.

Or did Randers pick his estimate from a range of estimates, knowing full well that it is optimistic, but feeling that this is all the American public can be told? Stranger things have happened in the past.

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CleanTechnicaSupport CleanTechnica’s work via dona [...]

QuoteThe FACT that the current incredibly STUPID e [...]

According to Israeli Prime Minister Benjamin Netan [...]

Over 100 students staged a walkout during Israeli [...]

Scientists have unlocked the power of gold atoms b [...]

Quote from: azozeo on August 14, 2019, 10:41:33 AM [...]

Wisconsin Bill Would Remove Barrier to Using Gold, [...]

Under extreme conditions, gold rearranges its atom [...]

The cost of gold futures on the Comex exchange inc [...]

Kicking off with the death of the Marlboro Man.RE[ [...]

Now UP on Global Economic Intersection!http://econ [...]

Alternate Perspectives

  • Two Ice Floes
  • Jumping Jack Flash
  • From Filmers to Farmers

Politicians’ Privilege By Cognitive Dissonance     Imagine for a moment you work for a small or medi [...]

Shaking the August Stick By Cognitive Dissonance     Sometime towards the end of the third or fourth [...]

Empire in Decline - Propaganda and the American Myth By Cognitive Dissonance     “Oh, what a tangled [...]

Meanderings By Cognitive Dissonance     Tis the Season Silly season is upon us. And I, for one, welc [...]

The Brainwashing of a Nation by Daniel Greenfield via Sultan Knish blog Image by ElisaRiva from Pixa [...]

Event Update For 2019-11-14http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.html Th [...]

Event Update For 2019-11-13http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.html Th [...]

Event Update For 2019-11-12http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.html Th [...]

Event Update For 2019-11-11http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.html Th [...]

Event Update For 2019-11-10http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.html Th [...]

With fusion energy perpetually 20 years away we now also perpetually have [fill in the blank] years [...]

My mea culpa for having inadvertently neglected FF2F for so long, and an update on the upcoming post [...]

NYC plans to undertake the swindle of the civilisation by suing the companies that have enabled it t [...]

MbS, the personification of the age-old pre-revolutionary scenario in which an expiring regime attem [...]

Daily Doom Photo

man-watching-tv

Sustainability

  • Peak Surfer
  • SUN
  • Transition Voice

Of Warnings and their Ripple Effects"We need wooden ships, char-crete buildings, bamboo bicycles, moringa furniture, and hemp cloth [...]

"Restoring normal whale activity to the oceans would capture the CO2 equivalent of 2 billion tr [...]

Ukrainian Rhapsody"Our future will be more about artificial intelligence, cybersecurity, and non-state actors tha [...]

LeBron’s Chinese Troll Mobs"In the 36 hours after James’ delete, a troll mob with bot support sent a flame tsunami at the [...]

Soft Paths to Zero"While reducing emissions should be a priority, it is morally questionable to focus on relative [...]

The folks at Windward have been doing great work at living sustainably for many years now.  Part of [...]

 The Daily SUN☼ Building a Better Tomorrow by Sustaining Universal Needs April 3, 2017 Powering Down [...]

Off the keyboard of Bob Montgomery Follow us on Twitter @doomstead666 Friend us on Facebook Publishe [...]

Visit SUN on Facebook Here [...]

What extinction crisis? Believe it or not, there are still climate science deniers out there. And th [...]

My new book, Abolish Oil Now, will talk about why the climate movement has failed and what we can do [...]

A new climate protest movement out of the UK has taken Europe by storm and made governments sit down [...]

The success of Apollo 11 flipped the American public from skeptics to fans. The climate movement nee [...]

Today's movement to abolish fossil fuels can learn from two different paths that the British an [...]

Top Commentariats

  • Our Finite World
  • Economic Undertow

A minor puzzle. The Valley of the Kings contains at least 63 tombs for Ancient Egyptian royalty. All [...]

But, dear Xabier, that was not the Wehrmacht, is was those dastardly SS! As you may recall, it was t [...]

The Pakistani find has totally failed to materialise, I see: "Pakistan Prime Minister Imran Kha [...]

They should have raised fuel prices a long time ago - and scrapped income taxes and suchlike [...]

As unconvincing as David Cameron's promise of cheap natural gas for Britain produced by frackin [...]

Here's an article: https://www.reuters.com/article/us-imo-shipping-factbox/factbox-imo-2020-a-m [...]

What is the shift away from bunker fuels? [...]

Yeah, when the water heater goes out the day after you just put new tires on one of the cars, etc... [...]

I join the chorus in welcoming you back. Any thoughts on how the shift away from bunker fuel on Janu [...]

@Front Range Mike "Most everyone I know is trying to figure out how to cut back and sell their [...]

RE Economics

Going Cashless

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Simplifying the Final Countdown

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Bond Market Collapse and the Banning of Cash

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Do Central Bankers Recognize there is NO GROWTH?

Discuss this article @ the ECONOMICS TABLE inside the...

Singularity of the Dollar

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Kurrency Kollapse: To Print or Not To Print?

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SWISSIE CAPITULATION!

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Of Heat Sinks & Debt Sinks: A Thermodynamic View of Money

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Merry Doomy Christmas

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Peak Customers: The Final Liquidation Sale

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Collapse Fiction

Useful Links

Technical Journals

The effect of urbanization on microclimatic conditions is known as “urban heat islands”. [...]

Forecasting extreme precipitations is one of the main priorities of hydrology in Latin America and t [...]

The objective of this work is the development of an automated and objective identification scheme of [...]